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FCM Settles CFTC Benchmark Manipulation Charges

Deutsche Bank Securities Inc. ("DBSI") agreed to pay a $70 million fine to settle CFTC charges that it attempted to manipulate the U.S. Dollar International Swaps and Derivatives Association Fix, a global benchmark referenced in several interest rate products. DBSI neither admitted nor denied the findings in the CFTC Order.

The CFTC alleged that DBSI traders and swaps brokers coordinated with each other in order to impact the rate near the critical fixing time. The CFTC claimed that the traders were attempting to benefit the firm's proprietary derivatives positions.

One notable aspect of recent CFTC settlements is that the CFTC has reinstated a practice of providing that the relevant enforcement action will not result in a disqualification under SEC Regulation A and Regulation D. The CFTC said that it does so having "considered factors similar to those considered by the SEC when it issues waivers of disqualification...." See footnote 8 in the Order issued in this case.

Securities Act Rules 262(b)(3) and 506(d)(2)(iii) specifically provide that the CFTC may "advise in writing" that a disqualification does not apply. Nevertheless, the CFTC had ceased doing so for some time after SEC Commissioner Stein criticized the practice and referred to the relevant provisions in the SEC rules as "loopholes." (Commissioner Stein also said she was "extremely disappointed" by the CFTC actions in these recent cases.)

The CFTC's practice makes sense. The SEC adopted rules that specifically envision the CFTC would act in this manner. If the SEC now disagrees, it should amend its own rules. Further, in the context of large institutions and enforcement cases wholly unrelated to participation in private placements, the questions should be less about whether a waiver should be granted and more about why a disqualification is automatic. (As has beennoted on this site previously.)